China is still choking exports of rare earths despite pact with US

Western companies say they are receiving barely enough magnets for their factories and have little visibility of future supplies. Firms are waiting weeks as Chinese authorities scrutinize their applications—only to be rejected in some cases. And applications for raw rare earths, which are used to make magnets, are rarely granted.

As a result, Western companies are concerned that the shortages could soon affect manufacturing. Companies are so desperate for magnets that they are opting for expensive airfreight whenever licenses are granted to prevent costly production shutdowns. Some manufacturers are experimenting with workarounds that would allow them to make their products without the most powerful magnets.

“It’s hand to mouth—the normal supply-chain scrambling that you have to do," said Lisa Drake, a vice president overseeing Ford’s industrial planning for batteries and electric vehicles, earlier this week. Although she said the situation had improved, the scarcity of the rare-earth magnets is forcing Ford to “move things around" to avoid factory shutdowns, she said.

Manufacturers have taken the continuing challenges as a sign that new Chinese rare-earth export restrictions, introduced in April after President Trump raised tariffs on China, are here to stay—contrary to White House assertions that the flow of the critical components would return to normal.

“Yes, the export restrictions have been paused on paper. However, ground reality is completely different," said Neha Mukherjee, a rare-earths analyst at Benchmark Mineral Intelligence. The licensing process is plagued by “bureaucratic drag."

China’s Ministry of Commerce said Thursday that it has been accelerating the review of rare-earth export license applications and has approved “a certain number."

The supply of rare minerals such as gadolinium is tightly controlled by China.

The restrictions illustrate the power Beijing holds through its formidable supply chains and how it can use them to inflict pain on Western businesses and exact concessions from the U.S.

China makes 90% of the world’s most powerful rare-earth magnets, a key component in everything from cars to jet fighters. In April, after Trump heaped stiff tariffs on Chinese products, Beijing established an export-control system for rare earths. While it said the license system was set up to regulate the export of materials for military use, the regime has in effect allowed China to clamp down on rare-earths supplies as it wishes.

After April, the supply of magnets to Western businesses slowed to a trickle, causing shock waves for global car, defense and electronics makers. Exports of rare-earth magnets to the U.S. declined 93% in May from a year earlier. Ford stopped production of its Explorer SUV at its Chicago plant for a week in May.

The U.S. accused China of slow-walking the approval of export licenses, which China denied. The shortage drove both sides back to the bargaining table earlier this month, where China agreed to free up the flow of rare earths in exchange for the U.S. easing its own restrictions on certain U.S. exports to China.

Following the deal, Trump wrote that “full magnets, and any necessary rare earths, will be supplied up front by China."

However, China put only a six-month limit on any new licenses, The Wall Street Journal has reported. Now, in the applications for export licenses, Chinese authorities are asking Western companies for sensitive details such as contact information of those buying their magnets and even designs of how their magnets are integrated into components like motors.

Chinese authorities justify the scrutiny as necessary to ensure the magnets aren’t used for military purposes, say companies involved in the magnet trade.

The U.S. has accused China of slow-walking the approval of export licenses, which China has denied.

When companies skip certain questions on their magnet applications to avoid disclosing sensitive intellectual property or details of commercial arrangements, their applications languish or are denied. In some cases, the applicants have then been told to start over and include all of the required information in a new application, which takes 45 days to process, according to companies involved in rare-earth imports.

“The control is real," said a representative of one such company. “There are thousands of applications the [Chinese authorities have] received."

Earlier this month, Germany’s main industry association called on the country’s new government to push China to ease the approval process. “German industry needs to be able to plan in the near term. Licensing procedures must not be used as a means of exerting political pressure," it said.

Beijing also appears to be trying to prevent stockpiling by Western businesses. One Chinese magnet maker has warned clients seeking to import more magnets than usual that they may have to explain to government officials the “business drivers" behind such large orders, according to an advisory note the magnet maker shared with clients.

Fearful of shortages, many Western businesses are complying with the information requests—but are still facing long delays. The success of their application also depends on their supplier. Big state-connected magnet companies are getting export licenses faster than smaller private ones, according to many in the industry.

“The export policy for magnet[s] is still very strict," said a representative for one Chinese magnet maker. Now, some Western businesses say they are resigned to the fact that the restrictions may remain in place indefinitely.

Some private Chinese magnet makers, who are under significant financial pressure due to the export controls, are working with clients to find workarounds. For instance, some are encouraging foreign clients to buy less-powerful magnets that don’t include any controlled rare earths. Some Chinese companies are also working to develop stronger magnets that don’t rely on restricted materials such as dysprosium and terbium.

But swapping out the most powerful and heat-resistant magnets is often impossible for the auto and electronics industries, which rely on magnets to efficiently power motors.

Olive Lien, an expert in semiconductor-cooling technology based in Taiwan, said many companies in recent months have been struggling to acquire rare-earth magnets needed for some high-end fan motors used in products such as AI servers and other high-performance computing systems. Many companies have been forced to redesign their products, such as by switching to cheaper and more readily available ferrite magnets, which are less powerful.

One U.S. magnet importer said that while two licensing applications he was involved with were recently approved, others are dragging. “The system is slow and burdensome," he said. “Very detailed and confusing for the applicants."

When automobile-parts companies do get their licenses approved, they are paying extra to rush the magnets to factories by air, costs which are often ultimately borne by the carmakers.

“These are the things you don’t hear about, how much money it is taking to keep these factories running, you know, limping along," the magnet importer said.

Write to Jon Emont at jonathan.emont@wsj.com